Bank of Montreal 1997 Annual Report Download - page 78

Bank of Montreal 180th Annual Report 199772
Securities are divided into three components, each with a different
purpose and accounting treatment. The three types of securities we hold
are as follows:
•Investment securities are comprised of equity and debt securities that
we purchase with the intention of holding until maturity or until market
conditions, such as a change in interest rates, provide us with a better
investment opportunity. Equity securities are recorded at cost and debt
securities at amortized cost. Securities are written down to their fair
value when we identify a long-term permanent decline in value. Any
write-downs or gains and losses on disposal of our investment securities
are recorded in the year they occur and are included in our Consolidated
Statement of Income as either an increase or decrease to other income.
Gains and losses on disposal are calculated using the average cost
of the securities sold. Investment securities of designated countries are
accounted for in accordance with our accounting policy for loans which
is described in note 4.
•
Trading securities are securities that we purchase for resale over
a short period of time. We report these securities at their market value
and record the mark-to-market adjustments and any gains and losses
on the sale of these securities as trading revenue in our Consolidated
Statement of Income. If the trading security has been designated as a
hedge of derivative financial instruments the adjustments are reported
as other income in our Consolidated Statement of Income.
•
Loan substitute securities are customer financings, such as distressed
preferred shares, that we structure as after-tax investments to provide
our customers with an interest rate advantage over what would other wise
be applicable on a conventional loan. We record these securities
on the
same basis as a loan as described in note 4.
Term to maturity 1997 1996
Within 1 to 3 3 to 5 5 to 10 Over 10 Total book Total book
1 year years years years years value value
Investment Securities Yield Yield Yield Yield Yield Yield
Issued or guaranteed by: %%%%%%
Canadian federal government $ 2,136 4.32 $ 631 4.76 $ 11 5.06 $ 119 5.19 $ – – $ 2,897 4.45 $ 5,388
Canadian provincial and
municipal governments 22 8.08 100 4.30 182 5.16 – – – – 304 5.09 211
U.S. federal government 708 5.81 380 6.55 967 5.96 759 5.85 – – 2,814 5.97 2,993
U.S. states, municipalities
and agencies 1,973 5.80 758 6.91 354 6.69 305 7.28 321 7.66 3,711 6.39 2,730
Designated countries – – – – – – – – 49 19.60 49 19.60 70
Other governments 51.90 – – 8 6.38 4 6.11 132 8.03 149 7.68 137
Mortgage-backed securities and
collateralized mortgage obligations 31 8.23 – – 322 6.64 – – 1,923 7.02 2,276 6.98 2,173
Corporate debt 192 6.61 275 6.93 609 7.46 2,659 7.07 939 8.41 4,674 7.36 2,240
Corporate equity
Associated corporation – – – – – – – – 537 – 537 – 436
Other 52 5.01 249 6.00 395 5.53 110 6.22 352 2.63 1,158 4.79 807
Total investment securities 5,119 5.23 2,393 6.08 2,848 6.34 3,956 6.77 4,253 6.30 18,569 6.08 17,185
Trading Securities
Issued or guaranteed by:
Canadian federal government 7,817 1,561 861 1,081 279 11,599 11,160
Canadian provincial and
municipal governments 408 143 70 128 678 1,427 1,843
U.S. federal government 991 317 752 819 772 3,651 3,634
U.S. states, municipalities
and agencies 160 17 27 4 – 208 119
All other 2,804 849 389 674 1,256 5,972 2,288
Total trading securities 12,180 2,887 2,099 2,706 2,985 22,857 19,044
Loan Substitute Securities 2 283 78 – – 363 380
Total Securities $ 17,301 $ 5,563 $ 5,025 $ 6,662 $ 7,238 $ 41,789 $ 36,609
Note 3 Securities
Yields in the table above are calculated using the book value of the security and the
contractual interest or stated dividend rates associated with each security adjusted for
any amortization of premiums and discounts and country risk provisions associated with
a particular security. Tax effects are not taken into consideration.
Securities of designated countries include any securities that we receive as part
of a debt restructuring by a foreign country. They are recorded net of any country risk
allowance (note 5) that we have allocated to these securities.
The term to maturity included in the table above is based on the contractual
maturity date of the security. Securities with no maturity date are included in the over
10 years category.
We did not own any securities issued by a single non-government entity where the
book value as at year end, or the prior year end, was greater than 10% of our share-
holders’ equity.